A Big Loss for Insurers in the Risk Corridor Litigation.

Today was a bad day for insurers seeking more than $12 billion in risk corridor money from the United States. Over a dissent, the Federal Circuit ruled that the federal government doesn’t owe them a cent. (I’ve been following the litigation for a long time; you can catch up on my prior posts here.)

The opinion starts on a bright note for insurers. The ACA, the Federal Circuit reasoned, created an enforceable obligation to pay risk corridor claims in full: the statute is “unambiguously mandatory.” The court brushed back the government’s arguments that the ACA created only a budget-neutral risk corridor scheme: “Nothing in section 1342 indicates that the payment methodology is somehow limited by payments in.”

That’s a big deal. If nothing else other than the ACA were in play, insurers would be entitled to recover everything they say they’re owed.

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Unfortunately for insurers, that’s not all that’s in play. Appropriations riders for fiscal years 2015 and 2016 limited funds available to pay risk corridor claims. Here’s the text of one of those riders (the other is identical):

None of the funds made available by this Act from [two available funds], or transferred from other accounts funded by this Act to the “Centers for Medicare and Medicaid Services-Program Management” account, may be used for payments under section 1342(b)(1) of [the ACA] (relating to risk corridors).

That’s all it says. By its terms, it doesn’t change the scope of the ACA’s underlying promise. It’s just a restriction on the use of certain funds to pay certain claims.

Nonetheless, the Federal Circuit says that Congress “clearly indicated its intent” in the appropriations riders to amend the risk corridor program:

[Congress] asked GAO what funding would be available to make risk corridors payments, and it cut off the sole source of funding identified beyond payments in. It did so in each of the three years of the program’s existence. And the explanatory statement regarding the amendment containing the first rider of House Appropriations Chairman Rogers confirms that the appropriations language was added with the understanding that HHS’s intent to operate the risk corridors program as a budget neutral program meant the government “will never pay out more than it collects from issuers over the three year period risk corridors are in effect.” 160 Cong. Rec. H9838 (daily ed. Dec. 11, 2014). Plainly, Congress used language similar to the appropriations riders in [prior cases] to temporarily cap the payments required by the statute at the amount of payments in for each of the applicable years—just as those decisions altered statutory payment methodologies.

What else could Congress have intended? It clearly did not intend to consign risk corridors payments “to the fiscal limbo of an account due but not payable.”

This is pretty weak tea. As the dissent points out, Congress tried and failed to amend the ACA to make the risk corridor program budget neutral. The appropriations rider was the best it could do. Chairman Rogers may have wanted to change the scope of the entitlement, but he wasn’t able to lock that down into statutory language. It’s a bad look for the court to privilege the bombastic statement of a bill’s proponent over the text of the law that Congress enacted.

Besides which, it’s completely plausible to think that Congress meant to “consign risk corridors” to “unpayable obligations.” Even as congressional Republicans kicked up a kerfuffle over “bailouts,” HHS was reassuring insurers that the agency would “record risk corridors payments due as an obligation of the United States Government for which full payment is required.” Knowing full well that it had an obligation to pay, Congress shut off the funding stream in a deliberate effort to sabotage the ACA.

And it worked! Loads of co-ops went under in response to the unexpected financial hit. Did Republicans in Congress care that they were reneging on a promise? Not a bit. They saw a chance to hurt Obamacare, and they took it.

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The Federal Circuit’s next move is to reject the insurers’ claim that HHS had made a contractually binding commitments to pay. Insurers argued that HHS used those commitments to “induce insurers to offer plans in the exchanges without an additional premium accounting for the risk of the dearth of data about the expanded market, in reliance on the presence of a fairly comprehensive safety net.”

Without quarreling with any of that, the court held that “the overall scheme of the risk corridors program lacks the trappings of a contractual arrangement that drove the result in [a prior case].” Why? The court thought it was relevant that HHS didn’t employ certain words in entering into this commitment—words like guarantee, offer, or contract. Instead, risk corridors were an “incentive program” for the benefit of third parties, not a “traditional quid pro quo.”

I’m again at a bit of a loss. You don’t have to use magic words to enter into a contract. You just have to make a promise. What’s more, every contract operates as an “incentive program”: my promise to perform is an incentive for you to perform. And loads of contracts are entered into primarily for the benefit of third parties. That doesn’t make them unenforceable.

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What’s next? The insurers will probably seek en banc review. This is a plausible candidate for full court rehearing: it’s a big money case, it carves a lot of crucial Federal Circuit cases, and (to my eyes) the reasoning is pretty dubious. But en banc review is rare, so insurers can’t pin their hopes on it.

From there, it’s on to the Supreme Court. Who knows if it’ll agree to hear the case? It’s not an implausible candidate for review, and lord knows the Court can afford to take more cases. But the Court might be gun-shy about wading into another case about the ACA.

So this isn’t the end of the road for insurers. But it’s a Michigan-sized pothole in that road. And the opinion reflects a disturbing unwillingness to hold the government accountable for its promises. That’s a point Judge Newman made in concluding her dissent:

The government’s ability to benefit from participation of private enterprise depends on the government’s reputation as a fair partner. By holding that the government can avoid its obligations after they have been incurred, by declining to appropriate funds to pay the bill and by dismissing the availability of judicial recourse, this court undermines the reliability of dealings with the government.

Craig Garthwaite and I sounded the same theme in the New York Times last year. That’s why this decisions disturbs me so much: the costs of being cavalier about our debts extend far beyond a fight over risk corridor money.